Dive Brief:
- Hasbro’s consumer products segment took a 31% hit to operating profit in the third quarter on costs and markdowns as it wrestled with higher inventory levels.
- For the first nine months of the year so far, the toy giant’s inventory value has risen more than 55% to $845 million, according to a company presentation.
- Executives told analysts that the company’s priority is to work through the inventory overages by the end of the year. CEO Chris Cocks said in a press release that the company had expected Q3 to be its most difficult in terms of prior comparisons and was “further impacted by increasing price sensitivity for the average consumer.”
Dive Insight:
Like much of the retail and consumer goods world, Hasbro experienced whiplash this year due to fast-changing consumer habits. Drops in discretionary spending have hit both the top and bottom line, and can be seen in the company’s inventory levels as well.
“[I]n the beginning of the year, we and the entire industry were chasing inventory at retail after a difficult holiday season,” Cocks explained to analysts. “It’s a big reason why we pushed inventory into the Q2 period to make sure we didn’t have that again so that we could promote aggressively in Q4 like our plan is today.”
Cocks was alluding to the widespread supply chain bottlenecks of 2021 that made inventory difficult to secure. In Q3 last year, for example, Hasbro saw $100 million worth of orders unfilled or delayed because of shipping disruptions and other issues.
With consumers playing defense against inflation, sales are flagging. Hasbro’s revenue fell companywide by 15% year over year to $1.7 billion in Q3. In the consumer products segment, which includes many of its most famous toy lines, revenue fell 10%. Four percentage points of that figure were due to a $40 million hit on foreign exchange, the company said.
Executives expect the inventory hangover to ease as the year unwinds. Cocks said Hasbro estimates inventory levels to be up by just low single digits for the fiscal year as a whole.
Even without the stark shifts in consumer spending, Hasbro has had a bumpy year. It survived an activist campaign that sought to shake up its board and spin-off one of its most valuable units, the Wizards of the Coast games business. Hasbro has also undergone a leadership transition, with Cocks taking the reins this year after the unexpected death of longtime chief Brian Goldner last fall.
For all the challenges, Hasbro executives sounded notes of optimism around the company’s strategic efforts and innovation pipeline.
“[W]e have a lot of new innovation that’s very on trend that’s coming out in Q4 that we think will comp very favorably in the first half of next year,” Cocks said.
The chief added that “I think whatever happens on the macroeconomic front, we have seven blockbuster films and 20 TV shows coming out that are very front half loaded that are giving us a tremendous amount of tailwinds to be able to handle whatever curve balls that the economy might throw our way.”
